When you’re sitting down to finalize product pricing, you need to find your goldilocks in order to maximize both sales and profit. If your pricing is too high, customers will opt for your competitor’s product instead. If it’s too low, however, customers may perceive it to not be as valuable as other options. Even if they don’t, you could be eating into your own profit and struggle to cover costs.
Product pricing will absolutely affect your sales, so you need to get it right. This has been backed up by research.
One study found that “charm prices” (which use .99 instead of rounding up one penny) increased sales by 24%. Another experiment conducted by MIT found something even more surprising: when pricing a single item at $34, $39, and $44, the $39 price point resulted in the most sales– even though it wasn’t the cheapest option.
When it comes to product pricing, that goldilocks price might surprise you, even after thorough research. Because of this, it’s essential to utilize A/B testing so that you can actually find the perfect product pricing for your audience and your store.
What Is A/B Testing and Why Do I Need It?
A/B testing (also called “split testing”) is the practice of testing out multiple versions of a single aspect of your marketing, sales campaign, or website in order to determine what will be most effective. You might, for example, want to A/B test two different offers on your main landing page to see which converts more.
You also want to test product pricing. Market research is never enough on its own, because there are so many complicated factors that go into who is willing to pay what for which items and from whom. (See, told you there was a lot to consider.)
Some customers, for example, will spend more on the exact same item from a brand they trust or perceive as a “premium brand” than if it was to come from a shop they weren’t familiar with.
In other cases, you may be selling the exact same dropshipped item_ as a competitor, but your overall audience is different, so pricing needs to reflect that. If you’re able to portray your product’s value more successfully than competitors, it becomes “worth” more in the eyes of your customers, allowing you to charge more.
And in others still, you might find that some numbers just seem to resonate with your audience more; maybe the $38 looks more pleasing than $37, even if it’s more expensive.
The only way to know for sure is to split test your product pricing.
How to Find The Perfect Product Pricing in 3 Easy Steps
Finding perfect product pricing will take some time and some research, but with the right system in place, it will be a painless and valuable process. All you have to do is follow the 3 steps outlined below, which will help you determine what you need to charge, what you likely can charge, and what you should charge.
1. Look At Your Current Costs
Examine all of your current overhead costs carefully. This will tell you what you need to charge per sale in order to make a bare minimum profit. If you sell your product for $100 a pop, after all, but it costs $99 to make, you’ll have a hard time scaling your business (and your bank account).
Costs to look at include:
- Site maintenance
- This Third party tools like invoicing software, server up time, or customer support agents
- Credit card fees
- Shipping expenses
- Return rates and losses
Keep all of your costs in mind when you’re determining product pricing, because they’ll draw the line of where you can start making a profit.
2. Market Research
You understand what you need to charge to stay afloat, so the next step will be to figure out what customers are willing to pay.
Check out your competitors and see what they’re charging. Look at their standard pricing, and offers that they may use to increase sales; regular discounts or bundled packages are two common strategies.
Once you do this, read their reviews on and off their site. See what people are saying, because they’ll definitely let you know if they feel like they’re getting a good price for the product they’ve paid for.
Seeing your competitors’ pricing can help you gauge where to get started on yours. If you’re targeting slightly different audiences or going for the premium brand appeal, you may be able to charge more. If, however, you’re dropshipping and reaching out to the same audience, you may want to consider dropping price slightly in order to stay competitive.
3. Choose Your Price Fluctuations
After steps one and two, you’ve likely come to a general price point that you know you want to shoot for. Excellent! Now, you’ll want to choose several specific price points within that range to A/B test.
When it comes to choosing how much to fluctuate price by, we recommended sticking to a difference of 10% of the original price or $5, whichever is more. This is true regardless of whether you’re raising or lowering price.
According to the data collected from the tests run from our app, raising prices by about 10% has been a big success for the majority of our customers. It typically doesn’t result in any loss of sales, but merchants see a hefty increase in revenue moving forward. While this may not work for every business, it’s worked for a large number of our app users and is worth considering– even if you have an established customer base already.
4. Start Split Testing
The easiest way to split test is to use A/B testing tools. If you’re wondering how to split test on Shopify, check out our Neat A/B testing app. It makes testing on Shopify easy, allowing you to quickly test different factors on your product pages (including product attributes like titles, descriptions, image, and pricing) and page layouts.
To test pricing, select a specific product and then enter in the new variant pricing that you want to test against the original default price. You’ll choose how long you want the cycle tests to last.
If you choose 24 hours, for example, price 1 will be displayed for the first 24 hours, and price 2 will then be shown for 24 hours. It will swap back and forth between the two until you decide to pause the test. We recommend waiting a minimum of one week before making any decisions.
After the test is complete, you’ll be able to get accurate results and assess what price point is right for every product in your store that you decide to test. You can create additional tests off the findings, or stick to what seems to be working.
Finding the perfect producing pricing will directly affect your sales. A combination of research and dedicated A/B testing is the only way to find the perfect product pricing for your brand.
Running initial A/B tests is important, but it will be just as important to continue to run these tests on an ongoing basis. As your business scales and offers new products and develops more credibility online, after all, it only makes sense that you’d be able to charge more if your customers were on board. You’ll also want to run A/B tests to evaluate product pricing for any new products or services you start offering, ensuring that you’re finding the right price point for every item you sell.
Interested in A/B testing product pricing in your Shopify store? Sign up for your free trial and start running tests to perfect your product pricing now.